Japan Economy Minister Urges Changes

Published 8:00 pm, Monday, February 11, 2002

Japan must clean up its bad bank debts along with fighting deflation if the nation hopes for economic recovery, the economy minister said Tuesday.

Economy minister Heizo Takenaka's comments come as the government prepares a package of policies to fight deflation.

But he declined to say when the package will be completed, or whether it will be released before President Bush visits Japan starting Sunday.

"The decision is up to the prime minister," Takenaka said.

Japan has been fighting price declines as it slides into its third recession in a decade. Deflation is a dangerous obstacle to a turnaround because it brings down income and further dampens economic activity.

Pressures are high from some legislators and economists for the Japanese government and central bank to do more to fight deflation, such as setting price targets. The fall in the price of land used as collateral is also a threat to the health of the banking sector.

"The government has said it will end deflation in two years. I believe that in itself is a loose form of price targeting," Takenaka told reporters after a meeting of the government's top economic panel.

The Bank of Japan, which has set interest rates virtually at zero in an effort to pump more money into the financial system, has promised to maintain its loose monetary policy until consumer prices clearly stop falling. The central bank kept monetary policy unchanged at a policy meeting last week.

Takenaka stressed that tackling deflation must include bad loan disposals. He said detailed monetary policy measures weren't discussed at Tuesday's meeting of the Council on Economic and Fiscal Policy, a government panel on economic reforms.

The anti-deflation package being drawn up will address ways to accelerate the disposal of bad loans, stabilize the financial system, arrest asset price falls and call for further monetary policy measures, Takenaka said.

Takenaka declined to comment on whether the package would include injecting banks with a fresh round of public funds.

Speculation has been growing that public money may be needed to bailout the Japanese banks. Takenaka reiterated he believes public funds should be injected into banks if needed. Public money was used during the 1997-98 financial crisis and afterward to prevent a meltdown in the banking sector.